The Sydney Morning Herald's Economics Editor

At last some good news on the economy. This week's national accounts for the December quarter show the economy speeding up and, in the process, starting its fabled ''transition'' away from being driven largely by mining investment.

The economy's medium-term ''trend'' rate of growth in real gross domestic product - the rate that holds unemployment constant - is thought to be 3 per cent a year. For much of last year the economy was seen to be travelling at only about 2.5 per cent, thus leading to a slow but steady rise in unemployment. But this week's accounts from the Bureau of Statistics show real GDP growing by 0.8 per cent in the December quarter and by 2.8 per cent over last year. Applying a bit of judgment, we can say the economy is probably now growing at an annualised rate of about 2.8 per cent.

This isn't enough to stop unemployment rising - and we really need a period of growth well above 3 per cent to get the jobless rate heading back down to its own trend level of about 5 per cent - but it beats 2.5 per cent. And, as I say, the accounts show reasonably convincing evidence the ''rebalancing'' of the economy - away from mining investment and towards the other sectors of the economy and sources of growth - is finally under way.

After quite a few quarters of weakness, consumer spending grew by 0.8 per cent in the quarter and by 2.6 per cent over the year. This strengthening is a bit of a surprise when you remember household disposable income is only crawling ahead, with no growth in employment and very low rises in wages.

Arithmetically, the explanation is a fall in the household saving rate from 10.6 per cent of disposable income to 9.7 per cent. But this ratio is volatile, so I wouldn't take it too literally. It's possible households have shaved their rate of saving - say, from the high 10s to the low 10s - but I doubt it signals a return to the low saving rates we saw in the couple of decades before the global financial crisis.

The second sign of rebalancing was long-awaited real growth of 1 per cent in spending on home building, including renovations. This is not unexpected considering the rises in established house prices and in the issue of local government building permits.

More recent ''partial indicators'' for the month of January confirm that consumption and home building have picked up. Nominal retail sales grew by a strong 1.2 in the month to be up 6.2 per cent on a year earlier. And residential building approvals rose strongly in the month to be up 34 per cent on a year earlier. Public sector spending rose by 1.1 per cent in the quarter, contributing 0.3 percentage points to the overall growth of 0.8 per cent in real GDP. Most of this came from public infrastructure spending.

But now we get to the bad news. Most of the growth I've outlined so far was offset by a sharp fall in business investment spending, which dropped by 3.6 per cent.

Most of this decline is explained by a drop in mining investment as the investment phase of the resources boom comes to an end. It's now clear mining investment peaked about a year ago.

It was our knowledge that mining investment was about to fall back from the dizzying heights it reached that caused us to see the need for ''transition'' or ''rebalancing'' in the economy (plus a few other buzzwords I've forgotten).

But this brings us to the weak part in the transition so far. Although most of the fall in total business investment is explained by mining, it's clear investment spending in the non-mining sector also fell - which is not what the doctor ordered. Rough estimates by Kieran Davies, of Barclays bank, suggest it fell by 1.2 per cent in the quarter and by 7 per cent over the year.

So if most of the growth in domestic demand in the quarter was cancelled out by the fall in business investment, where did the overall growth in aggregate demand of 0.8 per cent come from? From the one place left: net external demand, otherwise known as ''net exports'' - exports minus imports.

The volume (quantity) of exports grew by 2.4 per cent in the quarter and by 6.5 per cent in the year, whereas the volume of imports fell by 0.6 per cent in the quarter and by 4.6 per cent in the year.

Put the two together and net exports made a positive contribution to overall growth of 0.6 percentage points in the quarter and 2.4 points over the year.

Why are exports growing so strongly? Mainly because of rapid growth in our exports of minerals and energy as new mines come on stream. Why are imports so weak? Partly because domestic demand has been weak, but particularly because of the fall off in mining investment, which involves a lot of imported equipment. So the investment phase of the resources boom is coming to an end and leaving a hole in the economy, but the production and export phase of the boom is helping to fill the hole - helping to tide us over while the non-mining economy is getting back on its feet (to mix a few metaphors).

The resources boom's now favourable effect on net exports translates into a much lower current account deficit on our balance of payments. Whereas it used to get as high as 6 per cent of GDP in the old days, and averaged about 4.5 per cent, for the December quarter it was just 2.6 per cent.

Maybe the economy has a future after all.

Ross Gittins is the economics editor.

6 comments

What Ross fails to highlight is that the benefit of those rivers of minerals now flowing offshore goes 80% to foreigners. GDP includes all production within Australia's borders, whether or not Australians benefit. As we shift away from the mine building phase (with its huge construction and therefore local employment component) to the mine production phase (far more efficient without much employment), the difference between GNP and GDP will start to bite into employment and living standards. Don't expect to read about it much on these pages. Keep levering up into property, people. We can simply borrow our way to national prosperity. It's all good!

Commenter

Mcpaddy

Date and time

March 08, 2014, 11:04AM

or rely on the Chineee to spend $44 billion on property in Australia.

Commenter

Wing Nut

Date and time

March 08, 2014, 11:10AM

He also fails to mention that the growth started early last year when labor was in power.

Commenter

Neal

Location

Carns

Date and time

March 08, 2014, 1:00PM

Indeed, Wingnut! What a great outcome that will bring us. Only kleptocrats need apply. A terrific addition to our national fabric, and our kids be damned!

Commenter

Mcpaddy

Date and time

March 08, 2014, 12:08PM

The mining industry is investing heavily in remote control driverless trucks, trains, drilling, blasting equipment. You name it.

Soon the only "jobs" will be the maintenance teams and several guys sitting in a room full of computer screens and remote control joysticks.

This is a reflection of the workplace in general. Thousands of people laid off as computer automation takes over.